Time to re-Occupy Wall Street?

             Three years after bashing the Occupy Wall Street movement, I’m on board.  Yes, the Occupy Wall Street movement had a point after all. (Too bad it fizzled.)

Inequality is rising and it’s putting the economy at risk.  That’s the assertion of a number of economists, including the author of Capital in the 21^st Century, a 577-page dissertation on inequality over the past three centuries.

            I won’t suggest by any means that this book’s a page turner, but its research and message is revolutionary.  My family has watched me lug around this 10-pound book for the last three months.  If you don’t wish to learn how the capital-income ratio works, I would suggest skipping to the juicier parts on page 250 (or just read my blog, if you can get through it!)

            In the U.S., it turns out the uber rich have been having quite the ride.  Since 1977 (a great year, by the way), the top 1% of the population have absorbed 60% of the additional wealth produced.  This left a meagre 0.5% annual wealth increase for the “bottom” 90% (the majority of us).

            In the U.S. today, the wealthiest 10% of the population control 50% of the nation’s wealth.  The bottom 50% control 20%.  Perhaps even more striking, the top 1% (approximately 2.6 million people in the U.S.) own 20% of the nation’s wealth.  Canada isn’t too far behind with its top 1% owning 12% of national wealth and taking home one third of the nation’s gains from 1997 to 2007.

            It’s not a trend that’s reversing itself anytime soon.  The rich have a tendency to make great returns on their investments.  Given America’s current low-tax environment compared to 30 years ago, the top 10% will likely control over 60% of the wealth by 2030.

            Inequality has already reached the heights that once existed in Europe prior to World War 1.  This was a time when land and factory owners controlled most wealth and when the rest of society lived in misery and filth.  Out of this filth came child labour laws, the formation of unions, the birth of the weekend (yippee!), greater taxation of the wealthy, and much greater equality.

            While the poorest in society today benefit from better labour laws, a social safety net, and greater income overall, it doesn’t mean that we’re moving in the right direction.  A moral question arises: Is it right for Bill Gates to pay less tax as a proportion of income than a single working mother?

Not to mention the economic risk that inequality creates.  Piketty, along with a number of other economists, suggest that inequality creates a stagnation of purchasing power of the middle class that contributes to economic failure.  The wealth of the population’s top 10% peaked twice in the last one hundred years – once in 1928 and again in 2007 – both, not coincidentally, prior to major economic crashes. 

            While many in the U.S. make the claim that the rich create jobs, their investments, in reality, appear to do little but sit and grow interest. 

            And while in the 1800s it was the land-owners who occupied the top 10%, this population segment today consists mostly of “supermanagers,” those highly compensated executives of large firms.  Of the wealthiest 1% of the population, Piketty indicates that 70% are top managers of firms, with only 5% constituting “celebrities” such as actors and athletes. 

The supermanager has found a new niche in society as the meritocratic royal class, where they tend to be compensated Communist-style – whether they perform well or not.  They and the friendly board members who set their salary are all very generous with shareholder funds – when friends start awarding friends salaries, the sky is the limit.  In Canada, I recently heard the average CEO now makes over $9 million. 

The trend will only continue unless serious reforms take place, largely through increased taxation.  As the Conference Board of Canada indicates, taxation works to reduce inequality.  Piketty suggests a straight-forward tax on capital, but it could be as simple as a higher income tax bracket.

Such ideas are never popular among politicians so dependent upon corporate donors.  But something will need to change if greater equality is to be achieved.

Whether we really want it to be achieved is a whole nother question.